SAN RAMON, CA / ACCESSWIRE / May 3, 2023 / ARC Document Solutions, Inc. (NYSE:ARC), a leading provider of digital printing and document-related services, today reported its financial results for the first quarter ended March 31, 2023.

Management Commentary:

"We are happy to report that our first quarter results are in line with our expectations," said Suri Suriyakumar, Chairman and CEO of ARC. "Demand for our color digital printing and scanning business remained high despite tightening market conditions, and we produced remarkably strong profitability and cash generation."

"Our strategy to transform our customer base and our services is continuing to pay dividends," said Dilo Wijesuriya, President and Chief Operating Officer. "As the quarter progressed, we kept our sales focus on industry verticals that were expanding their marketing activities and investing in digitizing documents, and supported our onsite printing customers as they welcomed more employees back into the office. As a result, we largely offset declining sales from customers who were feeling the pressure from higher interest rates and inflation."

"We made solid improvements in profitability year-over-year, reflecting the efficiency and flexibility of our cost structure," said Jorge Avalos, Chief Financial Officer for ARC. "Gross margins grew 100 basis points, income from operations increased by 12%, and adjusted net income was up 10 percent year-over-year. This year will mirror 2022 in its buildup in EBITDA and cash flows from operations over the three remaining quarters, which makes us very comfortable with the idea of returning shareholder value via dividends and share repurchases equal to or greater than last year's amount."

2023 First Quarter Supplemental Information:

Net sales were $68.9 million, a 0.8% decrease compared to the first quarter of 2022.

Cash & cash equivalents on the consolidated balance sheet in the first quarter 2023 were $49.8 million.

ARC's next quarterly cash dividend of $0.05 will be paid on May 31, 2023, with a record date of April 28, 2023.

Days sales outstanding were 51 in Q1 2023 and 53 in Q1 2022.

The number of MPS locations remained relatively flat year-over-year at approximately 10,700.

Net Revenue

For the first quarter 2023, net sales decreased 0.8%, compared to the same period in 2022. The decrease in net sales in 2023 is primarily driven by the decrease in our lower margin Equipment & Supplies sales, and a decrease in our Digital Printing services, partially offset by the year-over-year increase in sales from MPS and Scanning and Digital Imaging services.

Revenue by Business Lines

For the first quarter 2023, Digital Printing sales decreased 1.4% compared to prior year. Year-over-year sales increased in digital color graphic printing from new and existing customers and we experienced continuing demand for digital color graphic printing across most of our customer base. This growth was offset by the decrease in digital plan printing sales which we attribute to less activity and lower spending on new construction projects due to increased costs of capital.

For the first quarter 2023, MPS sales increased 1.9% year-over-year. Growth in MPS sales reflects an increase of on-site printing volume as moderation of work-from-home directives encouraged more employees to return to offices during the period.

For the first quarter 2023, Scanning and Digital Imaging sales increased 10.2% year-over-year. The increase in sales was primarily attributable to growing demand for paper-to-digital document conversions used in day-to-day business operations, and the creation of digital archives to replace long-term warehoused paper document storage.

For the first quarter 2023, Equipment and Supplies sales decreased 16.7% year-over-year. The decrease was primarily a result of reduced sales from our Chinese joint venture as the Chinese economy continues to be challenged.

Gross Profit

First quarter 2023 gross profit improved by $0.5 million over the same period in 2022 driven by the efficiency in our cost structure and the reduction in depreciation expense. Gross margin improvement was largely driven by our efforts to drive more through our service centers which allows us to leverage our infrastructure (facilities & equipment), cross trained workforce, and production-grade equipment, as well as improved production efficiencies in 2023. The improvements were partially offset by an increase in labor resulting from the inflationary pressures experienced during the last twelve months.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses in the first quarter 2023 increased in absolute dollars year-over-year by $0.1 million or 0.7%, which is consistent compared to the same period in 2022 despite the increase in labor costs.

Net Income and Earnings Per Share

Year-over-year, net income attributable to ARC and earnings per share remained relatively flat during the first quarter of 2023. Year-over-year adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC increased slightly despite lower sales, as we benefited from the reduction in depreciation expense, and efficiencies in our overall cost structure. As hybrid work schedules have reduced office printing volumes, our need for printing equipment has significantly decreased and thus reduced our depreciation expense.

Cash Provided by Operating Activities

The year-over-year increase in cash flows from operations during the first quarter of 2023, compared to the same period in 2022, was primarily due to an improvement in accounts receivable collections, timing of payables, and continued inventory management.

EBITDA

EBITDA and adjusted EBITDA decreased in the first quarter of 2023 due to lower sales during the first quarter of 2023, compared to the same period in 2022.

Teleconference and Webcast

ARC Document Solutions will hold a conference call with investors and analysts on Wednesday, May 3, 2023, at 2 P.M. Pacific Time (5 P.M. Eastern Time) to discuss results of the Company's first quarter of 2023. To access the live conference call, dial (888) 330-2446. International callers may join the conference by dialing (240) 789-2732. The conference code is 6872020 and will be required to dial into the call. A live webcast will also be made available from the "Overview" and "Events & Presentation" pages of ARC Document Solution's investor relations website at http://ir.e-arc.com. A replay of the webcast will be available on the website following the call's conclusion.

About ARC Document Solutions (NYSE:ARC)

ARC partners with top brands around the world to tell their stories through visually compelling graphics. We use advanced digital printing technology, sustainable materials, and innovative techniques to bring their vision to life. ARC also provides other digital printing and scanning services to a wide variety of industries all over North America and in select markets around the world. Follow ARC at www.e-arc.com.

Forward-Looking Statements

This press release contains forward-looking statements that are based on current opinions, estimates and assumptions of management regarding future events and the future financial performance of the Company, and on the Company's operations. Words and phrases such as, "this year will mirror 2022 in its buildup in EBITDA and cash flows from operations over the three remaining quarters," "makes us very comfortable with the idea of returning shareholder value via dividends and share repurchases" "we expect," "look ahead," "we remain confident," "are within our reach," and similar expressions identify forward-looking statements and all statements other than statements of historical fact, including, but not limited to, any projections regarding earnings, revenues and financial performance of the Company, could be deemed forward-looking statements. We caution you that such statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. In addition to matters affecting the construction, managed print services, digital printing industries, or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the section titled "Part I - Item 1A. Risk Factors" of ARC Document Solution's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Contact Information:

David Stickney
VP Corporate Communications & Investor Relations
925-949-5114

ARC Document Solutions, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
(Unaudited)

ARC Document Solutions, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

ARC Document Solutions, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

ARC Document Solutions, Inc.
Net Sales by Product Line
(In thousands)
(Unaudited)

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of cash flows provided by operating activities to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)

See Non-GAAP Financial Measures discussion below.

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc. to EBITDA and Adjusted EBITDA
(In thousands)
(Unaudited)

See Non-GAAP Financial Measures discussion below.

ARC Document Solutions, Inc.
Non-GAAP Measures
Reconciliation of net income attributable to ARC Document Solutions, Inc. to unaudited adjusted net income attributable to ARC Document Solutions, Inc.
(In thousands, except per share data)
(Unaudited)

See Non-GAAP Financial Measures discussion below.

Non-GAAP Financial Measures

EBITDA and related ratios presented in this report are supplemental measures of our performance that are not required by or presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, net income margin or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating, investing or financing activities as a measure of our liquidity.

EBITDA represents net income before interest, taxes, depreciation and amortization.

We have presented EBITDA and related ratios because we consider them important supplemental measures of our performance and liquidity. We believe investors may also find these measures meaningful, given how our management makes use of them. The following is a discussion of our use of these measures.

We use EBITDA to measure and compare the performance of our operating divisions. Our operating divisions' financial performance includes all of the operating activities except debt and taxation which are managed at the corporate level for U.S. operating divisions. We use EBITDA to compare the performance of our operating divisions and to measure performance for determining consolidated-level compensation. In addition, we use EBITDA to evaluate potential acquisitions and potential capital expenditures.

EBITDA and related ratios have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are as follows:

• They do not reflect our cash expenditures, or future requirements for capital expenditures and contractual commitments;
• They do not reflect changes in, or cash requirements for, our working capital needs;
• They do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments on our debt;
• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and
• Other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and related ratios should not be considered as measures of discretionary cash available to us to invest in business growth or to reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and related ratios only as supplements.

Our presentation of adjusted net income and adjusted EBITDA is an attempt to provide meaningful comparisons to our historical performance for our existing and future investors. The unprecedented changes in our end markets over the past several years have required us to take measures that are unique in our history and specific to individual circumstances. Comparisons inclusive of these actions make normal financial and other performance patterns difficult to discern under a strict GAAP presentation. Each non-GAAP presentation, however, is explained in detail in the reconciliation tables above.

Specifically, we have presented adjusted net income attributable to ARC and adjusted earnings per share attributable to ARC shareholders for the three months ended March 31, 2023 to reflect the exclusion of changes in the valuation allowances related to certain deferred tax assets and other discrete tax items. This presentation facilitates a meaningful comparison of our operating results for the three months ended March 31, 2023. We believe these changes were the result of items which are not indicative of our actual operating performance.

We have presented adjusted EBITDA for the three months ended March 31, 2023 to exclude stock-based compensation expense. The adjustment to exclude stock-based compensation expense to EBITDA is consistent with the definition of adjusted EBITDA in our credit agreement; therefore, we believe this information is useful to investors in assessing our financial performance.

SOURCE: ARC Document Solutions